Wednesday, April 02, 2014

Lessons from the Digital First implosion

Schadenfreude broke out among some publishers today when Digital First Media killed an ambitious interactive publishing initiative and commenced layoffs to bolster the bottom lines of its newspapers in a reported plan to groom them for sale.

But no one should be happy that Digital First hit the wall. All this episode proves is that digital publishing – which remains the only imaginable way forward for newspapers and other legacy media – is even harder than we think.

Digital matters, because modern consumers – even those over the age of 55 – prefer to ingest news on a panoply of platforms including computers, smartphones, tablets and smart televisions. Even the American Press Institute, an arm of the Newspaper Association of America, recently concurred that “the majority of Americans across generations now combine a mix of sources and technologies to get their news each week.”

The problem with digital news publishing, as discussed here, is that few, if any, organizations have developed models that come close to successfully emulating the scale and profitability achieved in the best of times by the traditional publishing and broadcasting media.

Sustainable revenues and profitability have eluded digital natives of all sizes, including both for-profit and not-for-profit ventures. And it most certainly has eluded legacy publishers, with newspaper companies like Digital First Media trying to crack the digital publishing code while battling an advertising collapse that has seen their collective revenues plunge by more than 50% since peaking at $49 billion in 2005.

If digital publishing is so tough, then why are so many new entrants coming out of the woodwork? The answer, quite simply, is that content has become a hot area for venture investing. To name but a few examples, Vice Media has raised $70 million, Vox Media has raised $60 million and BuzzFeed has raised $46 million, according to Tech Crunch, which raised $25 million itself. This is not to mention Facebook, the biggest publishing platform of them all with $13 billion in cash, $7.9 billion in sales and a 37% operating margin. The magic of Facebook, of course, is that all the content is generated for free by its users.

Because venture investors favor exponential growth in audience and page views over such traditional metrics as revenue and profitability, they are content to underwrite these new digital ventures in the hopes that they will grow to the point they will merit an IPO or be acquired by a well-heeled player.

Unfortunately for self-styled publishing visionary John Paton, the chief executive of Digital First, he picked the wrong vehicle and the wrong financial backers to pursue his digital quest.

Until he nuked the ambitious Thunderdome interactive publishing effort, Paton enjoyed telling fellow publishers to stop grousing about the decline in print advertising dollars and to start “stacking digital dimes.” Although Paton’s privately held company does not report its financial results, his actions clearly suggest that the dimes did not accumulate as fast as dollars flowed out of the print side of his business, which even in its dissipated state demands attention because it continues to produce the preponderance of revenues and profits for his company. (This, of course, is also the case at every other newspaper.)

Paton ran out of time and resources to pursue his vision because he had the wrong financial backers. Digital First Media is a collection of dozens of newspapers, including the Denver Post and San Jose Mercury News, that had been bought in bankruptcy by Alden Global Capital, a distressed-debt specialist looking to buy properties on the cheap that it could fix and flip for a quick profit at the earliest opportunity.

In other words, the objectives of the Digital First investors were the antithesis of the patience – and multimillion-dollar commitment – required in the slog to identify successful interactive publishing models, whatever they eventually may turn out to be.

It would be a mistake to view the failure at Digital First as a failure of digital publishing or a reason to stop trying to get it right.

The only thing this sad chapter proves is that the pivot from legacy to digital publishing is going to be harder than we imagined.

15 Comments:

Do you have specifics to support your allegation of schadenfreude? All I have seen are good wishes and cheers for thinking big, trying hard and sharing generously. I think most serious executives in the industry wanted them to succeed, and any who are gloating now will only seem small and churlish.

Thunderdome was well executed editorially -- really well executed. The editorial goal, providing national stories that could be customized and at least carried by the group's 75 newspapers as well as by other entirely digital editorial outlets, was met. Selling subscriptions and advertising was far tougher, and that is where the failure lies. You have to know your reader and your advertiser or potential advertiser. Not easy. Where Gannett and Newhouse and so many others could produce good material for local customization on individual papers' websites a decade ago, the business stakes are far higher now.

Nationwide, there are clearly a LOT of Thunderdome-type editorial projects. NICAR had a huge crowd in Baltimore last month, and the journalists/data scrapers/visualizers/story-tellers were awesome indeed. They are also employed. Somewhere. So this isn't going to go away.

But to emphasize: Great content is only one part of the business case. It has to be monetized as well. That's where the problem was in this case.

...The problem with digital news publishing, as discussed here, is that few, if any, organizations have developed models that come close to successfully emulating the scale and profitability achieved in the best of times by the traditional publishing and broadcasting media...

As the days of cowboys and indians, herds of buffalo and hippies, THEY ARE GONE. The 'traditional' publishing model is no more. Never to happen again. Revenue and profits will adjust. However, not to the days of old.

I do not see a problem at all. We all just need to adjust. I really do not understand why some people refuse to believe this.

Here is the bottom line.1. I prefer to read news online.2. I won't pay for it.3. But, at age 65, I won't be around 20+ years from now so they don't have to pay attention to me.4. I run Adblock so I don't even see ads.

The untold story of this - and I have even asked Steve Buttry himself with no clear answer - is that the real problem for newspapers and digital is not a willingness to change or lack of great ideas: it's the ad reps. I have yet to work at or visit with any newspaper that has a sales force that can truly sell digital. It's the achilles heel for our industry and the real problem.

I'm afraid I don't see the innovation in Thunderdome. It was desk consolidation. A lot of chains are doing that. Gannet, for example. But those are cuts, not innovation. Innovation creates something new -- a better way to distribute content and ads taking advantage of new technologies and habits or, heaven forbid, a successful business model. The fact that desk consolidation counts as innovation shows how far the industry has to go.

Short of all newspapers and wire services forming a giant consortium and putting the news behind one giant pay wall, forcing Google et al to pay for the content, I don't see any way legacy media survives. I'm guessing that after a few months of reading nothing but clickbait and Yahoo News Contributors, people might actually opt to pay for the news. Then again, if they don't, they deserve what they get.

About Me

Alan D. Mutter is perhaps the only CEO in Silicon Valley who knows how to set type one letter at a time.
Mutter began his career as a newspaper columnist and editor at the Chicago Daily News and later rose to City Editor of the Chicago Sun-Times. In 1984, he became No. 2 editor of the San Francisco Chronicle.
He left the newspaper business in 1988 to join InterMedia Partners, a start-up that became one of the largest cable-TV companies in the U.S.
Mutter was the COO of InterMedia when he moved to Silicon Valley in 1996 to join the first of the three start-up companies he led as CEO.
The companies he headed were a pioneering Internet service provider and two enterprise-software companies.
Mutter now is a consultant specializing in corporate initiatives and new media ventures involving journalism and technology. He ordinarily does not write about clients or subjects that will affect their interests. In the rare event he does, this will be fully disclosed.
Mutter also is on the adjunct faculty of the Graduate School of Journalism at the University of California at Berkeley.